Question : Define zero based budgeting and mention its stages.
Answer : In this type of budget , the budget of each year is started from zero basis. It means each year the budgeting starts from zero level or starting to zero for developing new budget every year is called zero based budgeting.
That is , the allocated resources of previous years and their results have no effect on the current year. It means each year starts from the zero or new starting point , previous year data does not effect the current year budget.
Similarly, future budgets also have no relation. it means when we will make future budget than this year data also will not be useful or will not effect future budget. In Zero based budget definition we can say that the different type of expenditures are review from the zero or starting. in this type of budget the previous year or historical data can not be justify for allocation funding. Each line or each expenditure must be like from zero to get funding for any particular expenditure.
In this method, reason has to be given for each resource demanded in the current year.
Zero based budgeting involves the following steps :-
1. Identification and distribution of decision packages.
2. Evaluation of Decision Packages
3. Ranking of Decision Packages (Priority)
4. Allocation of resources.